UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 2, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-3215
JOHNSON & JOHNSON
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1024240
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
New Brunswick, New Jersey 08933
(Address of principal executive offices, including zip code)
908-524-0400
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
On July 28, 1995, 647,748,509 shares of Common Stock, $1.00
par value, were outstanding.
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JOHNSON & JOHNSON AND SUBSIDIARIES
TABLE OF CONTENTS
Part I - Financial Information Page No.
Consolidated Balance Sheet -
July 2, 1995 and January 1, 1995 3
Consolidated Statement of Earnings for the
Six Months Ended July 2, 1995 and
July 3, 1994 5
Consolidated Statement of Cash Flows
for the Six Months Ended July 2, 1995
and July 3, 1994 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
Signatures 16
Part II - Other Information
Item 4 - Submission of Matters to a
Vote of Security Holders 14
Item 6 - Exhibits and Reports on Form 8-K 15
Items 1, 2, 3 and 5 are not applicable
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Part I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
ASSETS
July 2, January 1,
1995 1995
Current assets:
Cash and cash equivalents $ 1,041 636
Marketable securities 38 68
Accounts receivable, trade, less
allowances $223 (1994 - $200) 3,106 2,601
Inventories (Note 3) 2,366 2,161
Deferred taxes on income 647 582
Prepaid expenses and other
receivables 638 632
Total current assets 7,836 6,680
Marketable securities, non-current 378 354
Property, plant and equipment, at cost 7,897 7,655
Less accumulated depreciation and
amortization 2,993 2,745
4,904 4,910
Intangible assets, net (Note 4) 2,783 2,403
Deferred taxes on income 451 262
Other assets 1,037 1,059
Total assets $ 17,389 15,668
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited; Dollars in Millions)
LIABILITIES AND STOCKHOLDERS' EQUITY
July 2, January 1,
1995 1995
Current liabilities:
Loans and notes payable $ 649 899
Accounts payable 1,150 1,192
Accrued liabilities 1,717 1,602
Accrued salaries, wages and commissions 367 257
Taxes on income 407 316
Total current liabilities 4,290 4,266
Long-term debt 2,138 2,199
Deferred tax liability 145 130
Certificates of extra compensation 71 85
Other liabilities 2,181 1,866
Stockholders' equity:
Preferred stock - without par value
(authorized and unissued 2,000,000
shares) - -
Common stock - par value $1.00 per share
(authorized 1,080,000,000 shares;
issued 767,412,000 and 767,392,000
shares) 767 767
Note receivable from employee stock
ownership plan (64) (73)
Cumulative currency translation
adjustments 277 (35)
Retained earnings 9,882 8,966
10,862 9,625
Less common stock held in treasury,
at cost (119,557,000 & 124,382,000
shares) 2,298 2,503
Total stockholders' equity 8,564 7,122
Total liabilities and stockholders'
equity $17,389 15,668
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited; dollars & shares in millions
except per share figures)
Fiscal Quarter Ended
July 2, Percent July 3, Percent
1995 to Sales 1994 to Sales
Sales to customers (Note 5) $4,762 100.0 3,916 100.0
Cost of products sold 1,562 32.8 1,287 32.8
Selling, marketing and
administrative expenses 1,857 39.0 1,558 39.8
Research expense 380 8.0 313 8.0
Other expense (income) 27 .5 (28) (.7)
3,826 80.3 3,130 79.9
Earnings before interest and
taxes on income 936 19.7 786 20.1
Interest income 33 .7 9 .2
Interest expense, net of
portion capitalized (38) (.8) (33) (.8)
Earnings before provision
for taxes on income 931 19.6 762 19.5
Provision for taxes on
income (Note 2) 270 5.7 203 5.2
NET EARNINGS $ 661 13.9 559 14.3
NET EARNINGS PER SHARE $ 1.02 .86
CASH DIVIDENDS PER SHARE $ .33 .29
AVG. SHARES OUTSTANDING 645.6 643.3
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited; dollars & shares in millions
except per share figures)
Fiscal Six Months Ended
July 2, Percent July 3, Percent
1995 to Sales 1994 to Sales
Sales to customers (Note 5) $9,258 100.0 7,606 100.0
Cost of products sold 3,009 32.5 2,468 32.5
Selling, marketing and
administrative expenses 3,577 38.7 3,038 39.9
Research expense 733 7.9 602 7.9
Other expense (income) 55 .6 (50) (.7)
7,374 79.7 6,058 79.6
Earnings before interest and
taxes on income 1,884 20.3 1,548 20.4
Interest income 51 .6 19 .2
Interest expense, net of
portion capitalized (83) (.9) (69) (.9)
Earnings before provision
for taxes on income 1,852 20.0 1,498 19.7
Provision for taxes on
income (Note 2) 537 5.8 395 5.2
NET EARNINGS $1,315 14.2 1,103 14.5
NET EARNINGS PER SHARE $ 2.04 1.71
CASH DIVIDENDS PER SHARE $ .62 .55
AVG. SHARES OUTSTANDING 644.5 643.2
See Notes to Consolidated Financial Statements
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JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited; Dollars in Millions)
Fiscal Six Months Ended
July 2, July 3,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $1,315 1,103
Adjustments to reconcile net earnings to
cash flows:
Depreciation and amortization of
property and intangibles 404 354
Increase in accounts receivable, trade,
less allowances (407) (263)
Increase in inventories (78) (100)
Changes in other assets and liabilities 41 132
NET CASH FLOWS FROM OPERATING ACTIVITIES 1,275 1,226
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (472) (327)
Proceeds from the disposal of assets 443 102
Acquisition of businesses, net of
cash acquired (70) -
Other, principally marketable securities (2) (132)
NET CASH USED BY INVESTING ACTIVITIES (101) (357)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to stockholders (400) (354)
Repurchase of common stock (129) (39)
Proceeds from short-term debt 151 213
Retirement of short-term debt (475) (466)
Proceeds from long-term debt 5 11
Retirement of long-term debt (8) (88)
Proceeds from the exercise of stock
options 59 27
NET CASH USED BY FINANCING
ACTIVITIES (797) (696)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS 28 26
INCREASE IN CASH AND CASH EQUIVALENTS 405 199
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 636 372
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,041 571
ACQUISITIONS OF BUSINESSES
Fair value of assets acquired $ 382
Fair value of liabilities assumed (12)
370
Treasury stock issued (300)
Net cash payments $ 70
See Notes to Consolidated Financial Statements
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - The accompanying interim financial statements and related
notes should be read in conjunction with the Consolidated Financial
Statements of Johnson & Johnson and Subsidiaries and related notes
as contained in the Annual Report on Form 10-K for the fiscal year
ended January 1, 1995. The interim financial statements include all
adjustments (consisting only of normal recurring adjustments) and
accruals necessary in the judgment of management for a fair
presentation of such statements. Earnings per share were
calculated on the basis of the average number of shares of common
stock outstanding during the applicable period.
NOTE 2 - INCOME TAXES
The effective income tax rates for 1995 and 1994 are as follows:
1995 1994
First Quarter 29.0% 26.1%
Second Quarter 29.0 26.6
First Half 29.0 26.4
The effective income tax rates for the first half of 1995 and 1994
are 29.0% and 26.4%, respectively, as compared to the U.S. federal
statutory rate of 35%. The major reason for this difference is the
result of domestic subsidiaries operating in Puerto Rico under a
grant for tax relief expiring December 31, 2007 and subsidiaries
manufacturing in Ireland under an incentive tax rate expiring on
December 31, 2010. The increase in the 1995 worldwide effective
tax rate was primarily due to an increase in income subject to tax
in the U.S. The Omnibus Budget Reconciliation Act of 1993 includes
a change in the tax code which will reduce the benefit the Company
receives from its operations in Puerto Rico by 60% gradually over
a five-year period.
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NOTE 3 - INVENTORIES
(Dollars in Millions) July 2, 1995 Jan. 1, 1995
Raw materials and supplies $ 672 477
Goods in process 683 640
Finished goods 1,011 1,044
$ 2,366 2,161
NOTE 4 - INTANGIBLE ASSETS
(Dollars in Millions) July 2, 1995 Jan. 1, 1995
Intangible assets $ 3,139 2,667
Less accumulated amortization 356 264
$ 2,783 2,403
The excess of the cost over the fair value of net assets of
purchased businesses is recorded as goodwill and is amortized on a
straight-line basis over periods of 40 years or less.
The cost of other acquired intangibles is amortized on a
straight-line basis over their estimated useful lives. The
increase in intangible assets is primarily due to the acquisitions
referred to in Note 6.
NOTE 5 - SALES TO CUSTOMERS BY SEGMENT OF BUSINESS AND GEOGRAPHIC
AREAS
(Dollars in Millions)
SALES BY SEGMENT OF BUSINESS
Second Quarter Six Months
Percent Percent
1995 1994 Increase 1995 1994 Increase
Consumer
Domestic $ 685 624 9.8 1,414 1,294 9.3
International 784 646 21.4 1,491 1,255 18.8
1,469 1,270 15.7% 2,905 2,549 14.0%
Pharmaceutical
Domestic 659 541 21.8 1,266 1,037 22.1
International 961 767 25.3 1,837 1,461 25.7
1,620 1,308 23.9% 3,103 2,498 24.2%
Professional
Domestic 886 744 19.1 1,726 1,425 21.1
International 787 594 32.5 1,524 1,134 34.4
1,673 1,338 25.0% 3,250 2,559 27.0%
Domestic 2,230 1,909 16.8 4,406 3,756 17.3
International 2,532 2,007 26.2 4,852 3,850 26.0
Worldwide $4,762 3,916 21.6% 9,258 7,606 21.7%
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NOTE 5 - SALES TO CUSTOMERS BY SEGMENT OF BUSINESS AND GEOGRAPHIC
AREAS
SALES BY GEOGRAPHIC AREAS
Second Quarter Six Months
Percent Percent
1995 1994 Increase 1995 1994 Increase
U.S. $2,230 1,909 16.8 4,406 3,756 17.3
Europe 1,492 1,176 26.9 2,848 2,249 26.6
Western Hemisphere
excluding U.S. 422 356 18.5 828 687 20.5
Africa, Asia and
Pacific 618 475 30.1 1,176 914 28.7
Total $4,762 3,916 21.6% 9,258 7,606 21.7%
NOTE 6 - ACQUISITIONS AND DIVESTITURES
During the second quarter, Johnson & Johnson completed the
acquisitions of Mitek Surgical Products, Inc., Menlo Care, Inc.,
and Joint Medical Products, Inc. Mitek Surgical Products, Inc. is
a developer and manufacturer of suture anchor products marketed for
soft tissue reattachment. Menlo Care, Inc. manufactures and
markets a line of vascular access products to hospital and home
health care professionals. Joint Medical Products sells both hip
and knee joint reconstruction products in the U.S. and
international orthopaedic markets. The aggregate purchase price
for these acquisitions was $370 million. Pro forma results of the
acquisitions, assuming that the transactions were consummated at
the beginning of each year presented, would not be materially
different from the results reported.
On March 31, 1995, the Company sold IOLAB's worldwide ophthalmic
surgical business to Chiron Vision, a division of Chiron
Corporation. This transaction, together with the sale last year of
IOLAB's ophthalmic pharmaceutical business furthers the Company's
ability to focus resources on other business areas that provide
greater opportunities for continued growth and profitability.
On March 15, 1995, the Company divested Johnson & Johnson
Advanced Materials Company and Chicopee B.V., Netherlands,
worldwide developers and marketers of non-woven materials used in
a broad range of health care, consumer and industrial applications.
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These divestitures resulted in an after-tax capital gain of $103
million, which was offset by write-offs of certain assets in
connection with reengineering programs.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SALES AND EARNINGS
Consolidated sales for the first six months of 1995 of $9,258
million exceeded sales of $7,606 million for the first six months
of 1994 by 21.7%. The strength of foreign currencies relative to
the U.S. dollar increased sales for the first six months of 1995 by
4.5%. The sales increase of 17.2% due to operations included a
positive price change effect of .6%. Consolidated net earnings for
the first six months of 1995 were $1,315 million, compared with net
earnings of $1,103 million for the first six months of 1994.
Earnings per share for the first six months of 1995 were $2.04,
compared with $1.71 for the same period a year ago. Net earnings
and earnings per share rose 19.2% and 19.3%, respectively.
Consolidated sales for the second quarter of 1995 were $4,762
million, an increase of 21.6% over 1994 second quarter sales of
$3,916 million. The effect of the weaker U.S. dollar relative to
foreign currencies increased second quarter sales by 4.8%, while
price changes contributed .4%. Consolidated net earnings for the
second quarter of 1995 were $661 million, compared with $559
million for the same period a year ago, an increase of 18.2%.
Earnings per share for the second quarter of 1995 rose 18.6% to
$1.02, compared with $.86 in the 1994 period.
Domestic sales for the first six months of 1995 were $4,406
million, an increase of 17.3% over 1994 domestic sales of $3,756
million for the same period a year ago. Sales by international
subsidiaries were $4,852 million for the first six months of 1995
compared with $3,850 million for the same period a year ago, an
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increase of 26.0%. Excluding the impact of the weaker value of the
dollar, international sales increased by 17.1%.
Worldwide consumer segment sales for the quarter increased by
15.7%, which include 9.8% in the U.S. and 21.4% internationally.
Growth was led by the addition of the Neutrogena line of high
quality hair and skin care products, which was acquired in the
third quarter of 1994, the U.S. launch of PEPCID AC Acid Controller
by Johnson & Johnson-Merck Consumer Pharmaceuticals Co., and the
continued growth of international markets, most notably Brazil.
In the second quarter, the Food and Drug Administration approved
PEPCID AC Acid Controller, the first and only non-prescription
product that both relieves and prevents heartburn and acid
indigestion. PEPCID AC is the first drug of its class to become
available over-the-counter (OTC) and the first significant OTC
advancement for the treatment of heartburn since antacids were
introduced more than 100 years ago.
Worldwide pharmaceutical segment sales for the quarter increased
by 23.9%, including 21.8% in the U.S. and 25.3% internationally.
Leading the increase in pharmaceutical sales growth were PROPULSID,
a gastrointestinal product; RISPERDAL, a new anti-psychotic
medication; PROCRIT, for the treatment of anemia; and SPORANOX, a
broad spectrum antifungal agent. Additionally, ULTRAM, the
centrally acting prescription pain reliever, which was launched in
late March, was an important contributor to the sales growth.
The worldwide sales increase of 25.0% in the professional segment
was comprised of 19.1% in the U.S. and 32.5% internationally.
Strong sales growth continued to be fueled by the rapid market
acceptance of the PALMAZ-SCHATZ Coronary Stent due to its efficacy
in reducing restenosis. Ethicon Endo-Surgery's minimally invasive
surgical instruments, and LifeScan's blood glucose monitoring
systems continued to deliver solid performances. Vistakon
- - 12 -
Disposable Contact Lenses posted strong sales, which reflected the
successful launch of 1-DAY ACUVUE in the U.S. and various
international markets. Johnson & Johnson Clinical Diagnostics, the
diagnostic business acquired from Kodak in November 1994, also
contributed to the significant sales growth in the professional
business.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of." The new statement will be adopted in
1996 and management is currently assessing its effect on the
Company's results of operations, cash flows or financial position.
Average shares of common stock outstanding in the first half of
1995 were 644.5 million, compared with 643.2 million for the same
period a year ago.
LIQUIDITY AND CAPITAL RESOURCES
Net debt (borrowings net of cash and current marketable
securities) as of July 2, 1995 was 16.6% of net capital
(stockholders' equity and net debt) compared with 25.2% at the end
of 1994. Net debt decreased by $686 million during the first six
months of 1995 to $1.71 billion at July 2, 1995. Total debt
represented 24.6% of total capital (stockholders' equity and total
borrowings) at quarter end, compared with 30.3% at the end of 1994.
Additions to property, plant and equipment were $472 million for
the first six months of 1995, compared with $327 for the same
period in 1994.
On July 17, 1995, the Board of Directors approved a regular
quarterly dividend of 33 cents per share payable on September 5,
1995 to shareholders of record as of August 15, 1995.
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Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) The annual meeting of the stockholders of the Company was
held on April 27, 1995.
(b) The Stockholders elected all the Company's nominees for
director, except for P.N. Larson who left the Company and
withdrew his name as a nominee prior to the meeting. The
Stockholders also approved the 1995 Stock Option Plan,
the 1995 Stock Compensation Plan and the appointment of
Coopers & Lybrand L.L.P. as the Company's independent
auditors for 1995. The votes were as follows:
1. Election of Directors:
For Withheld
J. W. Black 557,765,728 2,625,310
G. N. Burrow 558,714,958 1,676,080
J. G. Cooney 558,286,704 2,104,334
P. M. Hawley 551,380,380 9,010,658
C. H. Johnson 558,011,039 2,379,999
A. D. Jordan 558,423,273 1,967,765
A. G. Langbo 558,719,105 1,671,933
R. S. Larsen 557,515,632 2,875,406
J. S. Mayo 558,749,289 1,641,749
T. S. Murphy 558,515,577 1,875,461
P. J. Rizzo 558,427,391 1,963,647
M. F. Singer 558,700,168 1,690,870
R. B. Smith 555,692,421 4,698,617
R. N. Wilson 557,949,422 2,441,616
2. Approval of 1995 Stock Option Plan:
For 467,719,905
Against 87,739,134
Abstain 4,931,999
3. Approval of 1995 Stock Compensation Plan:
For 522,174,639
Against 33,566,762
Abstain 4,649,637
4. Approval of Appointment of Coopers & Lybrand L.L.P.:
For 556,333,348
Against 2,637,789
Abstain 1,419,901
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(c) A stockholder proposal on pharmaceutical pricing was
defeated. The vote on this proposal was as follows:
For 14,819,189
Against 462,542,083
Abstain 15,911,221
(d) A stockholder proposal on Non-Employee Director
Retirement Plan was defeated. The vote on this proposal
was as follows:
For 19,935,323
Against 387,790,534
Abstain 14,533,585
(e) A stockholder proposal on Maquiladora Market Basket
Survey was defeated. The vote on this proposal was as
follows:
For 23,914,527
Against 434,140,346
Abstain 35,192,185
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Numbers
(1) Exhibit 11 - Calculation of Earnings per Share
(2) Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during
the six month period ended July 2, 1995.
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SIGNATU RES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
JOHNSON & JOHNSON
(Registrant)
Date: August 11, 1995 By C. H. Johnson
C. H. Johnson
(Vice President, Finance)
Date: August 11, 1995 By J. H. Heisen
J. H. Heisen
(Corporate Controller)
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Exhibit 11
JOHNSON & JOHNSON AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(Dollars and shares in millions except per share figures)
Fiscal Quarter Ended
July 2, July 3,
1995 1994
1. Net earnings ................ $ 661 559
2. Average number of shares outstanding
during the period............ 645.6 643.3
3. Earnings per share based upon average
outstanding shares (1 / 2) $ 1.02 .86
4. Fully diluted earnings per share:
a. Average number of shares out-
standing during the period. 645.6 643.3
b. Shares issuable under stock
compensation agreements at
quarter-end .............. .1 .3
c. Shares reserved under the stock
option plan for which the
market price at end of quarter
exceeds the option price.. 33.5 16.0
d. Aggregate proceeds to the Company
from the exercise of
options in 4c ............ 1,518 413
e. Market price of the Company's
common stock at fiscal
quarter-end............... 67.63 42.88
f. Shares which could be repurchased
under the treasury stock method
(4d / 4e) ................ 22.4 9.6
g. Addition to average outstanding
shares (4b + 4c - 4f)..... 11.2 6.7
h. Shares for fully diluted earnings
per share calculation
(4a + 4g) ................ 656.8 650.0
i. Fully diluted earnings per share
(1 / 4h) ................. $ 1.01 .86
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Exhibit 11
JOHNSON & JOHNSON AND SUBSIDIARIES
CALCULATION OF EARNINGS PER SHARE
(Dollars and shares in millions except per share figures)
Fiscal
Six Months Ended
July 2, July 3,
1995 1994
1. Net earnings ................ $1,315 1,103
2. Average number of shares outstanding
during the period............ 644.5 643.2
3. Earnings per share based upon average
outstanding shares (1 / 2) $ 2.04 1.71
4. Fully diluted earnings per share:
a. Average number of shares out-
standing during the period. 644.5 643.2
b. Shares issuable under stock
compensation agreements at
quarter-end .............. .1 .3
c. Shares reserved under the stock
option plan for which the
market price at end of quarter
exceeds the option price.. 33.5 16.0
d. Aggregate proceeds to the Company
from the exercise of
options in 4c ............ 1,518 413
e. Market price of the Company's
common stock at fiscal
quarter-end............... 67.63 42.88
f. Shares which could be repurchased
under the treasury stock method
(4d / 4e) ................ 22.4 9.6
g. Addition to average outstanding
shares (4b + 4c - 4f)..... 11.2 6.7
h. Shares for fully diluted earnings
per share calculation
(4a + 4g) ................ 655.7 649.9
i. Fully diluted earnings per share
(1 / 4h) ................. $ 2.01 1.70
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